Make a Rainy-Day Plan

Everyone needs an emergency fund, because everyone encounters emergency expenses. Emergencies include everything from broken appliances and emergency room trips to car crashes and burglaries. But just 39% of Americans say they have enough money in savings to cover an unexpected $1,000 expense, according to a January 2021 survey from Bankrate.com. The survey also revealed that 18% of respondents would have to use a credit card to cover the expense.

The Unexpected
An emergency happens—predictably—when you least expect it. And some emergencies are bigger than others, such as job loss, divorce, death of a spouse, or a long-term health crisis. These unexpected events don’t just lead to financial hardship, they also present emotional challenges, making it even harder to dig yourself out of debt.

How Much Should You Save?
It can be hard knowing how much money you need to save in an emergency fund, because emergency expenses come in all sizes. Start by thinking about why you need an emergency fund. It’s meant to help you survive a sudden financial burden that wouldn’t normally appear in your budget. Emergency funds should give you peace of mind, knowing you have a financial safety net if the worst should happen.

To figure out how much you need, you first need to know how much you are spending. Our Basics of Budgeting page can help you. Once you’ve accounted for all your expenses, you can use this helpful emergency fund calculator from the BC Securities Commission.

Starting an Emergency Fund
Your emergency fund should be large enough to cover your expenses for a few months. If the prospect of saving that much money feels overwhelming, just remember that you can start small. Save whatever you can from each paycheck until you’ve grown a healthy emergency fund.

This money should be liquid, meaning you can quickly convert it to cash. The problem with this is that the temptation is there to spend your emergency fund on things that are NOT emergencies. You can make it harder to spend by saving your emergency fund in a different bank or avoiding linking it to your checking account.
 

Helpful Resources

The resources below have proven helpful to our investor education team. This list of links is intended for informational and educational purposes only. Indiana MoneyWise does not guarantee the quality, accuracy, timeliness, or completeness of any content featured on partner websites. 

Emergency Funds
Getting a Divorce
Out of Work